12 Jun 2009 13:45
12 June 2009
Hydrodec Group plc
Preliminary Results and Placement of Ordinary Shares
Hydrodec Group plc (AIM:HYR) ("Hydrodec" or the "Company") today announces unaudited preliminary results for the year ended 31 December 2008.
Operational:
Canton, Ohio plant becomes operational
Canton production expected to reach maximum capacity in 2009
Young, NSW plant makes maiden profit
Japanese venture continues to make significant progress
Equity placing to raise £3.2 million (before expenses)
Appointment of Gill Leates as a Non-executive Director
Financial:
Revenues: £3.8 million (2007: £1.9 million)
Net cash outflow from operations £2.3 million (2007: £0.6 million)
Total operating loss £4.8 million (2007: £2.1 million)
Loss on ordinary activities £8.4 million (2007: £2.3 million)
Net assets £26.9 million (2007: £20.8 million)
Hydrodec Chairman John Gunn commented:
"2008 was a year of substantial achievement for Hydrodec. The Company achieved profitable trading in Australia, construction and commissioning of the first US plant, doubling of staff numbers, advanced negotiations for entry to the Japan market, and the removal of all patent related future royalty obligations.
Financial results for the year were disappointing, affected by the global financial crisis, in particular the fall in oil prices, the purchase of Virotec and the cost and teething problems typical of operating a new, large scale plant such as Canton. Based on a long term strategy, the Company made difficult strategic decisions regarding supply contracts and pricing in 2008 which the Board believes that the Company has, and will continue to, benefit from as Ohio heads towards full capacity. The market dynamics in the US have led the Board to consider plans for a second US plant.
The Japanese opportunity continues to progress and represents a tremendously exciting potential new market for the Company. I anticipate the potential will become reality during 2009.
I am delighted to welcome Gill Leates to the Board of Hydrodec. Gill has spent many years working as an extremely well respected fund manager and we look forward to working with her and gaining the benefit of her market experience."
For further information please contact:-
Hydrodec Group plc +61 2 6382 5387
Mark McNamara, CEO
John Dickson, Finance Director
Numis Securities Limited +44 20 7260 1000
Nominated Adviser: Simon Blank
Corporate Broker: David Poutney / Alex Ham
Curve PR +44 20 8742 1597
Emma Davis +44 7764 197003
CHAIRMAN'S STATEMENT
I am pleased to present Hydrodec's unaudited preliminary results for the year ended 31 December 2008. Hydrodec's technology is an oil refining process, producing new speciality oils, using spent oil as the primary feedstock. The Company currently has plants in Young, NSW Australia and Canton, Ohio, US, producing SUPERfine transformer oil.
Results for year ended 31st December 2008
Turnover for the year increased by 205% to £3.8 million (2007: £1.9 million), with an overall net operating loss of £8.4 million (2007: £2.3 million). The operating loss includes £6.1 million (2007: £1.6 million) of non-cash items due primarily to the write-off of investments acquired as part of the Virotec transaction, options expensed during the year, as well as depreciation and amortization of the intangible assets acquired. The operating loss before non-cash items was £2.3 million (2007: £0.7 million). Net assets were £26.3 million (2007: £20.8 million).
Market conditions
The unprecedented recent economic conditions adversely effected Hydrodec in 2008 and early 2009. In particular, the collapse in the global crude oil price impacted the Company during a crucial period, as it was generating first production from the Ohio plant and negotiating significant SUPERfine supply contracts at the time. During Q4 2008 and Q1 2009, the Board took the strategically difficult decision not to commit to long-term contracts at such historically low oil prices. We believe that this was the correct decision, as there has been significant improvement in both transformer and crude oil prices throughout 2009.
Whilst the Board believes that the Company has, and will continue to, benefit from this decision in 2009 and beyond, the Company experienced working capital constraints as it had geared up for production in Canton, in particular by building up high levels of feed-stock. As a result, two placings of new equity were made, in November 2008 and February 2009, together raising £3.9 million (before expenses). These placings have allowed the Company to take long-term decisions on pricing and SUPERfine supply.
Canton
Over the course of the year, the Canton facility has developed from a historic brownfield site to a commercial operating plant. On 22 July 2008, final stage commissioning was completed and the first stage of operations of the Canton plant commenced as oil feedstock was run through the reactors under operating conditions for the first time. On 18 December 2008, Hydrodec received verification that Canton SUPERfine had passed independent quality assurance verification, following which samples were sent to many customers for their approval. The 22,000 square foot plant was officially opened by the Mayor of Canton on 8 October 2008 and on 23 October 2008 the first bulk shipment of product to a customer in Maryland was made.
Young
The Young plant operated for the entire year, producing 3.4 million litres of oil, and made an operating profit of AU$600,000, a tremendous achievement given the economic back drop within which it was operating. The Young plant managed to maintain good margins, which is a testament to the quality of SUPERfine and its acceptance in the Australia market.
Fund raisings
On April 21 2008, a placing of approximately 10 million new ordinary shares of 0.5 pence each in the Company ("Ordinary Shares") raised £5 million (before expenses) to fund the acquisition of Virotec and general corporate purposes, including further expansion of the Company's activities.
On 26 November 2008, a placing of approximately 8 million new Ordinary Shares raised £2 million (before expenses) to fund working capital requirements and allow the Company to continue to pursue opportunities within the Japanese and hydraulic oil markets.
Following the year end, on 23 February 2009, a placing of approximately 19 million new Ordinary Shares raised £1.9 million (before expenses) to fund working capital requirements.
Corporate activity
The acquisition of Virotec, via a scheme of arrangement for aggregate consideration of £39 million was completed in June 2008. The consideration was a mixture of new equity and cash and as a result 64,689,227 new Ordinary Shares were issued.
The operating businesses within Virotec were not acquired, primarily leaving Hydrodec with 54.4 million Hydrodec shares and 30 million shares in Molectra Group Ltd ("Molectra"). Post year end, on 4 February 2009, the Molectra shares were sold for aggregate gross consideration of £300,000, leading to a substantial non-cash loss of £1,950,000. The consideration received was a reflection of the significant deterioration in Molectra's share price due to prevailing market conditions. As the asset was held for resale, the value was adjusted to reflect this deterioration.
On 5 June 2008, Hydrodec announced the complete pre-payment and cancellation of a 5% royalty that was payable to CSIRO for the life of the patent, for £2.75m (AU$5.6m).
Trading update
The Company is pleased with progress made despite the current recessionary environment and remains confident of reporting a profit from its operations in the current financial year.
United States
The global price of crude oil and the transformer oil market both appear to have stabilised and started to recover after the lows of January and February this year. West Texas Intermediate (WTI) Crude is a key index used in establishing US transformer oil pricing and has increased by approximately 50% since the early 2009 lows. Feedstock prices have also stabilised and the average feedstock cost to Hydrodec has reduced by approximately 40% since February.
Since the financial year end of 31 December 2008, Hydrodec has announced two significant agreements. The Company entered into a 3 year agreement with Consolidated Edison Company of New York ("Con Edison") through which Hydrodec will receive all of Con Edison's used transformer oil. The agreement provides for approximately 450,000 gallons per annum to be received at the Ohio plant which will be re-refined into SUPERfine.
Hydrodec also concluded an agreement to receive all of Exelon's used transformer oil (approximately 650,000 gallons per year) and re-refine it into SUPERfine. The Chicago-based electric utility ComEd has committed to purchase back this re-refined SUPERfine, effectively creating a closed-loop supply chain for transformer oil.
The Board considers that the forward sales of SUPERfine transformer oil are encouraging and the Canton plant is expected to achieve full operational capacity in 2009. The Group has also secured committed feedstock supply in excess of 90% of current available plant capacity and the Board continues to identify additional probable feedstock sources. The Board believes that demand and market conditions are continuing to improve and this has encouraged the Board to consider plans for a second US plant or an expansion of the Canton plant. These plans are expected to firm up in the second half of 2009 following an evaluation of potential logistical and financing arrangements.
Australia
The Australian plant has recently successfully completed its first full catalyst change since commissioning. The change was completed smoothly as planned and with minimal interruption to normal operations. This plant continues to run consistently and reliably. The Australian facility also continues to provide systems, process and product development support for all activities across the Group.
On 12 May 2009, the Company sold the non-core Condition Monitoring Business for a total consideration of AU$800,000. AU$600,000 was received immediately and AU$200,000 is expected to be received on 11 July 2009.
Japan
Demonstration trials for the benefit of the Japanese Environment Ministry have been completed under witness by Japanese representatives in the Young, NSW plant. The Company awaits the results of the trial and Japanese government approval of Hydrodec's technology for commercial application in Japan. Negotiations with the prospective Japanese partner continue to progress.
Placing and General Meeting
The Company also today announces the intention to raise approximately £3.2 million (before expenses) by way of a conditional placing ("Placing") of 22,857,143 new Ordinary Shares at 14p each ("Placing Price").
The Placing is being carried out to enable the Company to pursue its expansion aspirations from a more sound capital base and is also expected to help facilitate the procurement of additional capital for new plants proposed to be built in the United States and Japan in response to strong product demand. The net proceeds of the Placing will be used, primarily, to fund the ongoing working capital requirements of the Group and as seed capital for the proposed new plants. This seed capital will be used to secure the appropriate sites for the plants, the necessary approvals and to enable Hydrodec to pursue debt funding for these developments.
The Placing is subject to shareholder approval at a General Meeting to grant the Directors authority to issue the new Ordinary Shares, and which is expected be held at 10.00 a.m. on Monday 29 June 2009 at the offices of Numis Securities Limited at The London Stock Exchange Building, 10 Paternoster Square, London EC4M 7LT.
The Company has entered into a placing agreement ("Placing Agreement") with Numis Securities Limited ("Numis"). Pursuant to the terms of the Placing Agreement, Numis, as agent for the Company, has agreed to use reasonable endeavours to procure subscribers for the new Ordinary Shares at the Placing Price. In the event that any of the new Ordinary Shares are not subscribed under the Placing, Numis will subscribe as principal for such new Ordinary Shares at the Placing Price. The Placing Agreement is conditional upon, inter alia, the resolutions being duly passed at the General Meeting and Admission becoming effective on or before 8.00 a.m. on 30 June 2009 (or such later date as the Company and Numis may agree, but in any event no later than 8.00 a.m. on 14 July 2009). The Placing Agreement contains provisions entitling Numis to terminate the Placing Agreement at any time prior to Admission in certain circumstances. If this right is exercised, the Placing will not proceed. The Placing is being fully underwritten by Numis.
Application will be made to the London Stock Exchange for the new Ordinary Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the new Ordinary Shares on AIM will commence at 8.00 a.m. on 30 June 2009.
Hydrodec will shortly be posting to shareholders a circular attaching a notice convening the General Meeting.
Board changes
As announced in February, the Board is currently considering a number of high calibre candidates to join the Board as Non Executive Directors. Further to this, the Company is delighted to announce that Gillian Margaret Leates (51) has been appointed as a Non-executive Director with immediate effect. Gill brings with her a wealth of public market experience having served as Investment Director on the main Board of Majedie Investments PLC. Gill also worked as a Non-executive Director of Majedie Asset Management Limited where she played a key role in setting up the UK pension fund management business in 2002 which now manages approximately £4 billion.
As previously announced, Rodger Sargent, a Non Executive Director, is retiring from the Board at the AGM.
The following information on Gill Leates is provided pursuant to AIM Rule 17.
| Current Directorships |
| Rosemary Gardens, Mortlake (Management) Limited |
| Previous Directorships (in the past 5 years) |
| Majedie Investments PLC |
| Barlow Service Company Limited |
| Majedie Portfolio Management Limited |
| Majedie Asset Management Limited |
| Majedie Investment Trust Management Limited |
| Previous names |
| Gillian Margaret Day |
AGM
An AGM to approve these accounts and other matters will be held on 28 July 2009.
The future
SUPERfine transformer oil offers our customers sustainability with a predictable supply and competitive price, advantages which are even more compelling given the green legislation expected to be passed by President Obama. With Australia profitable, Ohio approaching capacity, plans for a second US plant developing and the Japanese opportunity continuing to progress, 2009 should see Hydrodec begin to fulfil its potential.
John Gunn
Non-executive Chairman
12 June 2009
HYDRODEC GROUP PLC
UNAUDITED CONSOLIDATED INCOME STATEMENT
| Note | 2008 | 2007 | |
| £'000 | £'000 | ||
| Revenue | |||
| Continuing operations | 3,791 | 1,852 | |
| Acquisitions | - | - | |
| Total revenue | 3,791 | 1,852 | |
| Cost of sales | (1,501) | (471) | |
| Gross profit | 2,290 | 1,381 | |
| Administrative expenses | (7,394) | (3,526) | |
| Operating loss | |||
| Continuing operations | (4,848) | (2,145) | |
| Acquisitions | (256) | - | |
| Total operating loss | (5,104) | (2,145) | |
| Exceptional item - provision for investment loss | (1,950) | - | |
| Interest payable | (1,619) | (286) | |
| Interest receivable | 312 | 151 | |
| Loss on ordinary activities before taxation | (8,361) | (2,281) | |
| Tax on loss on ordinary activities | - | - | |
| Loss for the period | (8,361) | (2,281) | |
| Loss per share - basic and diluted | (3.55p) | (1.20p) | |
The accompanying accounting policies and notes form an integral part of these financial statements.
hydrodec group plc
| Note | 2008 | 2007 | |
| £'000 | £'000 | ||
| Non-current assets | |||
| Property, plant and equipment | 15,826 | 6,751 | |
| Intangible assets | 15,147 | 6,293 | |
| Other asset - prepaid royalties | 2,555 | - | |
| 33,528 | 13,044 | ||
| Current assets | |||
| Trade and other receivables | 1,119 | 748 | |
| Current asset investment | 298 | - | |
| Inventories | 93 | 156 | |
| Cash and cash equivalents | 243 | 12,129 | |
| 1,753 | 13,033 | ||
| Current liabilities | |||
| Borrowings - bank overdraft | (172) | - | |
| Trade and other payables | (2,190) | (1,194) | |
| (2,362) | (1,194) | ||
| Net current (liabilities)/assets | (609) | 11,839 | |
| Non-current liabilities | |||
| Borrowings | (4,514) | (4,051) | |
| Deferred taxation | (2,077) | - | |
| (6,591) | (4,051) | ||
| 26,328 | 20,832 | ||
| Capital and reserves | |||
| Called up share capital | 1,389 | 969 | |
| Share premium account | 56,247 | 19,029 | |
| Equity reserve | 9,411 | 9,574 | |
| Treasury reserve | (26,809) | - | |
| Employee benefit trust | (807) | (284) | |
| Share options reserve | 2,903 | 2,477 | |
| Profit and loss account | (19,448) | (11,087) | |
| Foreign exchange reserve | 3,442 | 154 | |
| Total equity | 26,328 | 20,832 | |
The accompanying accounting policies and notes form an integral part of these financial statements.
hydrodec group plc
| 2008 | 2007 | ||
| £'000 | £'000 | ||
| Cashflows from operating activities | |||
| Loss before tax | (8,361) | (2,281) | |
| Net finance costs | 1,307 | 136 | |
| Exceptional item | 1,950 | - | |
| Amortisation | 914 | 524 | |
| Depreciation | 363 | 292 | |
| Loss on disposal of fixed assets | 18 | - | |
| Share based payment expense | 426 | 337 | |
| Foreign exchange movement | 1,116 | 339 | |
| Increase in inventories | 63 | (81) | |
| Increase is amounts receivable | (289) | (502) | |
| Increase in amounts payable | 172 | 644 | |
| Net cash outflow from operating activities | (2,321) | (592) | |
| Cashflows from investing activities | |||
| Purchase of property plant and equipment | (8,050) | (3,173) | |
| Foreign exchange movement | 1,116 | - | |
| Purchase of subsidiary undertaking | (5,248) | - | |
| Royalty prepayment | (2,685) | - | |
| Bank interest and other income received | 312 | 89 | |
| (14,555) | 3,083 | ||
| Cashflows from financing activities | |||
| Issue of new shares | 7,000 | 2,300 | |
| Costs of share issue | (205) | (116) | |
| Purchase of share capital | (581) | (281) | |
| Issue of convertible loan stock | - | 13,800 | |
| Costs of loan stock issue | - | (578) | |
| Interest paid | (1,209) | (51) | |
| Repayment of lease liabilities | (195) | (161) | |
| Net cash inflow from financing | 4,810 | 14,963 | |
| Increase in cash and cash equivalents | 12,066 | 11,237 | |
| Movement in net cash | |||
| Cash | 12,129 | 946 | |
| Bank overdraft | - | (54) | |
| Opening cash and cash equivalents | 12,129 | 892 | |
| Cash acquired with acquisition | 8 | - | |
| Increase in cash and cash equivalents | (12,066) | 11,237 | |
| Closing cash and cash equivalents | 71 | 12,129 | |
The accompanying accounting policies and notes form an integral part of these financial statements.
hydrodec group plc
| Share capital | Share premium | Equity reserve | Foreign exchange reserve | Profit and loss account | Share option reserve | Treasury reserve | Employee benefit trust | Total | |
| £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | £000 | |
| At 1 January 2006 | 923 | 16,891 | - | (185) | (8,806) | 2,140 | - | - | 10,963 |
| Exchange differences | - | - | - | 339 | - | - | - | - | 339 |
| Loss for the period | - | - | - | - | (2,281) | - | - | - | (2,281) |
| Share-based payment | - | - | - | - | - | 337 | - | - | 337 |
| Issue of shares | 46 | 2,254 | - | - | - | - | - | - | 2,300 |
| Issue of convertible loan | - | - | 9,993 | - | - | - | - | - | 9,993 |
| Issue costs | - | (116) | (419) | - | - | - | - | - | (535) |
| Purchase of shares | - | - | - | - | - | - | - | (284) | (284) |
| At 31 December 2007 | 969 | 19,029 | 9,574 | 154 | (11,087) | 2,477 | - | (284) | 20,832 |
| Exchange differences | - | - | - | 3,288 | - | - | - | - | 3,288 |
| Loss for the period | - | - | - | - | (8,361) | - | - | - | (8,361) |
| Share-based payment | - | - | - | - | - | 426 | - | - | 426 |
| Issue of shares | 102 | 7,489 | - | - | - | - | (649) | 58 | 7,000 |
| Ac1quisition (note 20) | 312 | 29,695 | - | - | - | - | - | - | 30,007 |
| Issue costs | - | (205) | - | - | - | - | - | - | (205) |
| Purchase of shares | - | - | - | - | - | - | - | (581) | (581) |
| Acquisition (note 20) | - | - | - | - | - | - | (26,160) | - | (26,160) |
| Conversion of loan stock | 6 | 239 | (163) | - | - | - | - | - | 82 |
| At 31 December 2008 | 1,389 | 56,247 | 9,411 | 3,442 | (19,448) | 2,903 | (26,809) | (807) | 26,328 |
The accompanying accounting policies and notes form an integral part of these financial statements.
hydrodec group plc
1. ACCOUNTING POLICIES
BASIS OF PREPARATION
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU under the historical cost convention. They are presented in sterling, which is the functional currency of the group because the significant events of the current and prior period occurred in sterling.
The preparation of financial statements in accordance with IFRS requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.
forecast The financial statements have been prepared on the going concern basis, which assumes that the group will have sufficient funds to continue in operational existence for the foreseeable future. The group has constructed the Canton, Ohio, plant and is in the process of bringing the plant to full production capacity. Currently, the group is economically dependent upon the ability of this plant to produce sufficient SUPERfine oil at satisfactory margins to sustain adequate cash flow to meet the group's requirements. The Directors are satisfied that if i) current margins and ii) production continue at the levels it has over the last 4 weeks, and grows as forecast (based on secured agreements for 100% plant capacity for both sales and purchases) the Group's cash flow requirements will be met. Note, margins are effected by, amongst other things, the world price for oil, around which there is material uncertainty, which is beyond the control of the Directors. The directors believe that it is appropriate to prepare the financial statements on a going concern basis as they believe that the operating parameters outlined above will be met or exceeded.
2. LOSS PER SHARE
The calculation of the basic loss per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year.
The weighted average number of shares used in the calculations are set out below:
| 2008 | 2007 | |
| Number of shares | Number of shares | |
| 201,866,635 | 189,725,620 |
As at 31 December 2007 and 31 December 2008, the share options were anti-dilutive and consequently no diluted earnings per share figure is included. The weighted average number of shares excludes 61,096,666 shares that are held by the Employee Benefit Trust or were acquired as part of the Virotec acquisition.
3. Annual report
Copies of the annual report and accounts will be sent to shareholders in the near future and will be obtainable from the Company's head office at the 6th Floor, 80 Cannon Street, London. EC4N 6HL.
4. Status of this report
The financial information set out in the announcement, which was approved by the Board of Directors on 12 June 2009, is unaudited and does not constitute the Company's statutory accounts for the year ended 31 December 2008. The auditors have indicated that their audit opinion may be modified to include an emphasis of matter paragraph regarding going concern. The accounting policies applied in preparing the financial information are consistent with those adopted and disclosed in the Group's statutory accounts for the year ended 31 December 2007. The financial information for the years ended 31 December 2007 is derived from the statutory accounts for that year, which have been delivered to the Registrar of Companies.